Today's tepid growth could be as good as it gets for developers and landlords of retail real estate.
"Normally the economy recovers in three or four years," said William Keaney, managing director of CIT Retail Finance, one of the nation's larger lenders to retail chains. "But this time there are headwinds to keep the consumer from bailing out the economy."
That's what a panel of high powered retail finance experts Tuesday told the Turnaround Management Association, a trade group of 250 Florida firms that specialize in distressed debt, liquidations and bankruptcy proceedings.
The shopping center vacancy rate has stabilized at a less-than-healthy 10 percent and rents are down a third from a boom time peak in 2007.
Now add a changed consumer to the mix. Lack of income growth, rising food and gas prices and the prospect of higher interest rates when the Federal Reserve eases off the gas pedal all promise to keep retail spending growth in check.
Meantime online retail sales are growing at 10 percent a year, triple the rate of sales growth in brick and mortar stores, noted Lee Diercks, a partner in Clear Thinking, a consulting firm that has advised retailers like J.C. Penney Co.
While massive store closings appear over for now, retailers are trimming their ranks more than in normal times. Major retail bankruptcies are way down (18 in 2011 versus 32 in 2009) not because business is better, but because new rules governing Chapter 11 filings made it harder for retailers to get financing to emerge from a reorganization.
Other panel insights:
• The most widespread new strategy is shrinking the size of stores to bolster profitability. Macy's, Kohl's, DSW, Office Depot, Walmart and Target lead the list.
"Landlords will have to get very creative to slice and dice all the leftover space," said Spencer Mehl, senior vice president of RCS Real Estate Advisors which counts McDonald's and Disney Stores as clients. "This comes when the country is so seriously over-stored we have joked about creating a team of arsonists."
• Eyes are riveted to struggling Sears, which also owns Kmart. The retail giant this month decided to drop apparel to downsize some of its mall stores while trying to raise billions of dollars selling the real estate it owns in most of the dominant regional malls in the country.
• There may be fewer store closings overall, but pressure is building for more chains to trim their ranks including any chain competing with strong online rivals. The list includes Barnes & Noble, Books-a-Million, Gap, Coldwater Creek, Steinmart, Dillard's, Pac-Sun, Burger King, Denny's, Foot Locker, Regal Entertainment and AMC Theaters.
• The growth vehicles of the 1990s like Best Buy and Sports Authority, which carry the widest selection for specific interest groups, are a threatened species. One Apple store, for instance, generates eight times the sales productivity of a Best Buy in a seventh of the space, yet only sells five basic product lines.
"The big box store model is broken," said Morton Mucey, vice president of SB Capital, a financial arm of the Schottenstein family that launched American Eagle Outfitters and DSW.
Mark Albright can be reached at email@example.com or (727) 893-8252.